After the "channel buster" anticipated in our previous look at crude oil a couple of weeks ago, the oil price has backed off to the $64/barrel area where it is currently struggling with its 30-day trend line. What can we expect next in the oil market?
While most of the talk in the days following Katrina was the effect it might have in lifting oil and gas prices, what went unnoticed by the media commentators was the very thing alluded to in the headline of this commentary, namely, the "buster" above the upper boundary of the trend channel and subsequent exhaustion. This was shown in oil's failure in overcoming decisively the $70 psychological level the pundits had been focusing on last month.
Now that oil has dropped back, might we not see another test of the trend channel lower boundary between the $56-$58 area before the latest correction is over? That's certainly a possibility, and I'd be disappointed if oil didn't at least dip down to the $60 level. The 200-day moving average currently intersects at just below the trend channel floor near $56 and oil is still a bit too far away from this important moving average, so some more "correcting" would seem to be in order.
As we all know, oil is more politically motivated than any other commodity. As the fundamentalists never tire of saying, it's all "supply and demand." That much I agree with, for the market manipulators control the supply of oil, for which there is a never-ending demand. By artificially controlling supply output (and through their ingenious use of propaganda, such as the "Peak Oil" myth), they've been able to push the price of oil higher than anyone imagined just a few short years ago.
The psychological backdrop for the latest oil price pullback was seen in the sudden surge of consumer anger and took the form of protests over the high fuel prices. Media reports of consumers actually resorting to stealing gas at the pump began hitting news wires. In last month's oil commentary I asked when would a voice of protest finally arise over the overly inflated fuel prices. We soon got our answer as a wave of protest, as depicted in the news media, was enough reason to force the oil manipulators to back off for a while. Once oil and gas prices drop off a bit more and the consumer rage over high prices has cooled, the manipulators will once again most likely start another campaign of rising prices.